In a surprising revelation, representatives from the Bank of China publicly hinted that China may soon begin ‘diversifying’ its massive foreign exchange holdings. While currency strategists always pay heed when countries make such announcements, the case of China is especially noteworthy for the simple fact that China’s reserves total nearly $800 Billion, 70% of which are held in USD-denominated assets. Economists agree that it is unlikely will diversify much of its existing reserves, which play a central role in maintaining the de facto Yuan-Dollar peg. Instead, China will likely begin investing a portion of the $15 Billion in new reserves it accumulates each month into European or Japanese assets. Either way, in the context of China, any move towards diversification would make a big splash in forex markets.

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